Discharge of Contract

8 Key excerpts on "Discharge of Contract"

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  eBook - ePub

  Optimize Contract Law

  • Kathrin Kuhnel-Fitchen, Tracey Hough(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  8 Discharge of Contract      

  Revision objectives

  Understand the law	• Can you outline what ‘Discharge of Contract’ means? • Can you explain the different ways in which a contract may be discharged?
  Remember the details	• Can you explain the exceptions to the rule of strict performance? • Can you explain what is meant by anticipatory and repudiatory breach? • Can you outline the legal requirements needed for the doctrine of frustration to apply? • Can you outline the legal effects of frustration?
  Reflect critically on areas of debate	• Can you explain what happens to the parties’ obligations in case of discharge by breach of contract? • Do you understand the different explanations for the theoretical basis of the doctrine of frustration? • Do you agree with the outcome and the reasoning in Krell v Henry ?
  Contextualise	• Do you understand the different contexts of the different forms of Discharge of Contract and how they will operate in the typical commercial setting? • Do you understand the different legal consequences of discharge for the parties?
  Apply your skills and knowledge	• Can you answer the question at the end of this chapter?

  Chapter Map

  Introduction

  Once formed by offer, acceptance and consideration, an agreement becomes an enforceable contract: for the duration of this contract, each party must perform his contractual obligations as specified by its terms with the consequence that, if either party fails to so perform, the disappointed party may go to court to seek contractual remedies against the non-performing party. This chapter considers the duration of the performance obligations in the contract. In this context, it is important to note that, just as the primary contractual performance obligations have a starting point – at formation – so they have an end point which arrives when the contract can be said to be discharged.

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  eBook - ePub

  Beginning Contract Law

  • Nicola Monaghan, Chris Monaghan(Authors)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Chapter 9 Discharge of a Contract

  Learning Outcomes

  After reading this chapter, you should be able to:

  • Understand the different ways in which a contract can be discharged
  • Appreciate the effect of the rule from Cutter v Powell
  • Explain what is meant by an anticipatory breach
  • Demonstrate knowledge of the rules on frustration of a contract
  • Understand the remedies available upon frustration

  What is Meant by Discharge of a Contract?

  Where a contract is discharged, the parties’ obligations under the contract no longer exist; although, as we shall see, an action for breach of contract is still available after the contract has been discharged. In this chapter, we will see that a contract can be discharged in four ways. These are:

  1. Discharge by agreement
  2. Discharge by performance
  3. Discharge by breach
  4. Discharge by frustration

  Discharge by Agreement

  The parties can agree to discharge the contract. This operates where the obligations under the contract have not yet been performed, and the parties agree to waive contractual performance. The problem with discharge by agreement is that the promise to forgo performance must be supported by consideration. As we saw in Chapter 3 , a promise to accept less (i.e. a promise to accept part payment of a debt owed) which has not been supported by consideration, will not be enforceable. Therefore, unless new consideration has been given, the party who has agreed to discharge the contract can, at a later date, demand that the other party performs their obligation. In these circumstances, the defendant might be able to rely upon promissory estoppel as a defence.

  Discharge by Performance

  The contract can be discharged by performance. Most contracts are discharged in this way as the parties will both perform their contractual obligations and the contract will come to an end. This could operate where a builder has agreed to build an extension in return for payment upon completion of the work. Discharge by performance will take place when the extension is completed and the money has been paid.

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  eBook - PDF

  Optimize Contract Law

  • Kathrin Kuhnel-Fitchen, Tracey Hough(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  This chapter considers the duration of the performance obligations in the contract. In this context, it is important to note that, just as the primary contractual performance obligations have a starting point – at formation – so they have an end point which arrives when the contract can be said to be discharged. Discharge of Contract (sometimes called ‘termination of contract’) may happen in several ways: ❖ by (express or implied) agreement that the parties are discharged from their respective obligations to perform under the contract; ❖ by full and proper performance of the contract obligations; ❖ by a sufficiently serious breach of contract by one party to allow the innocent party to thereafter treat the contract (and any of his outstanding performance duties under it) as discharged from that point in time; and ❖ if it becomes impossible to perform the contract for unforeseen reasons independent of the actions of either party such that the contract and the performance due under it are automatically discharged by the doctrine of frustration. Why is the issue of Discharge of Contract important? As Discharge of Contract sets the point in time when primary performance obligations end, it is essential to understand the law concerning the three types of Discharge of Contract in order to know: (a) whether your own performance obligation remains to be completed or is at an end; (b) what your options are concerning any given breach of contract either threatened or committed by the other party; (c) whether and, if so, how, the doctrine of frustration applies to automatically discharge the contract and its performance obligations, as a matter of law, from the time of the frustrating act.

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  Contract Law

  • Chris Turner(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  12  

  Discharge of a contract

     12.1 Discharge of the contract

  1	Discharge refers to the point where the contract is ended.
  2	This should be when all obligations are satisfactorily performed.
  3	However, in some circumstances not all obligations are performed but the contract is still considered to be discharged.
  4	When the contract is breached by one party, the other party can consider their obligations discharged, and the party breaching the contract is then bound by new ‘secondary obligations’.

   

     12.2 Discharge by performance

  12.2.1  The strict rule of performance

  1	The strict rule is that a contract is not discharged until all of the obligations have been performed.
  2	Generally, a failure to perform an obligation by one party then gives rise to a remedy for the other party.
  3	There is, however, no obligation on a party to exceed the standard of performance required by the contract (Ateni Maritime Corporation v Great Marine (1991)).
  4	The rule originated for ‘entire contracts’, which require complete performance of all obligations ( Cutter v Powell (1795) ), so part performance only means no payment.
  5	The principle applies in Sale of Goods Act contracts, e.g:
  •	for breaches of the implied condition that goods should be as described under s 13 on the basis that ‘a ton does not mean about a ton, or a yard about a yard. If a seller wants a margin he must, and in my experience does, stipulate for it’ – Lord Atkin in Arcos Ltd v Ronaasen

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  Business Law and the Regulation of Business

  • Richard Mann, Barry Roberts(Authors)
  • 2019(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  In each instance, the debt B owes A is discharged. DISCHARGE BY OPERATION OF LAW [17-5] In this chapter, we have considered various ways by which contractual duties may be discharged. In all of these cases, the discharge resulted from the action of one or both of the parties to the contract. In this section, we will examine discharge brought about by the opera- tion of law. Impossibility [17-5a] If a particular contracting party is unable to perform because of financial inability or lack of competence, for instance, this subjective impossibility does not excuse the promisor from liability for breach of contract, as the next case shows. Historically, the common law excused a party from contractual duties only for objective impossibility, that is, for situations in which no one could render per- formance. Thus, the death or illness of a person who has contracted to render personal services is a discharge of his contractual duty. Furthermore, the contract is discharged if, for example, a jockey contracts to ride a certain horse in the Kentucky Derby and the horse dies prior to the derby, for it is objectively impossible for this or any other jockey to perform the contract. Also, if Ken contracts to lease to Karlene a certain ballroom for a party on a scheduled future date, destruction of the ballroom by fire without Ken’s fault before the scheduled event discharges the contract. Destruction of the subject matter or of the agreed-upon means of performance of a contract, without the fault of the promisor, is excusable impossibility. an accord and satisfaction without any preliminary accord executory or any other executory contract of any kind. [For example, a] debtor may offer the substituted performance in satisfaction of his debt and the creditor may receive it, without any binding promise being made by either party.” [Citation.]] Because an accord and satisfaction discharges the underlying claim, that defense is legal, not equitable.

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  eBook - ePub

  Using Commercial Contracts

  A Practical Guide for Engineers and Project Managers

  • David Wright(Author)
  • 2016(Publication Date)
  • Wiley

    (Publisher)

  Both parties will be reasonably satisfied with what the other has done, and both will recognise that they have not performed the contract perfectly. The result will be an agreement that the contract should be terminated on the basis of a final settlement of all the outstanding issues between the parties. This ‘accord’ will basically provide that each party will have no further claims against the other party under the contract (which provides consideration, ‘satisfaction’) on whatever terms have been agreed.

  Commercially it is advisable for the termination agreement to be set out in writing.

  Variation

  What is meant here is not a ‘variation’ clause, which allows one of the parties to modify, change or extend the amount of work to be done by the other party under the contract, but a change to the contract.

  Variation of the contract is not termination, but the considerations that apply are very similar. Any variation to the contract must be done by a separate contract in just the same way as an accord and satisfaction. As with an accord and satisfaction the form of the variation agreement is of no matter, except that in the case of the variation of any contract which is required to be in writing (see Chapter 5 above), the variation agreement must also be in writing.

  Waiver and release

  Waiver is the act of giving up a legal right.

  Release is the legal jargon term that applies to unilateral termination. The party who has completely performed his side of the contract simply ‘releases’ the other party from his obligations to continue to perform the contract.

  16.4 Discharge by frustration

  A contract is frustrated where circumstances have intervened after the contract was made which are outside the control of the parties and have resulted in its becoming impossible to perform as originally intended. It is then terminated by operation of law, without any action by the parties.

  It is much beloved of academic lawyers. It has led to a large amount of textbook law, plus an Act of parliament all to itself dealing with its consequences. It is also much used as an excuse for failure to perform, but the occasions on which the courts have accepted the excuse are few and far between.

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  eBook - ePub

  Unlocking Contract Law

  • Chris Turner(Author)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  •  But agreements to vary terms are invalid unless evidenced in writing •  If a new agreement is to be substituted for an existing agreement then it is unenforceable except in writing

  Unilateral agreements

  Case/statute

  A unilateral discharge is more difficult because one party fails to perform so there is a lack of consideration. There are three possibilities:

  •  release by deed (although see now Williams v Roffey where the consideration is the ‘extra benefit’ gained by the party releasing the other from his obligations)

  •  accord and satisfaction – which can be introducing a new elemen or part-payment at an earlier stage (Pinnel’s case)

  British Russian Gazette v Associated Newspapers Ltd

  •  estoppel – when equity will not allow the party waiving rights to break the promise.

  Central London Properties Trust Co v High Trees House

  15.4  Discharge by frustration 15.4.1  The purpose and development of the doctrine

  In the strictest sense, effective discharge of a contract, as we have seen, requires performance of all of the obligations under a contract. Inevitably, also, there will be times when the requirement for strict performance will lead to injustice.

  This can be the case particularly where there is a factor preventing a party or parties from performing which is beyond the control of either party to the contract. It is because of this potential injustice that the doctrine of frustration developed in the nineteenth century.

  The original common law rule was that a party was bound to perform his obligations under the contract regardless of the effect of any intervening events that might make it more difficult or even impossible to perform the contract. Under this strict rule, then, a party could not be discharged from contractual obligations even though the factors preventing him from performing were entirely unforeseeable and beyond his control.

  CASE EXAMPLE

  Paradine v Jane (1647) Aleyn 26

  Paradine sued Jane for the rent that was due under a lease. Jane’s defence was that he had been forced off the land by an invading army for a period of three years during the lifetime of the lease. The court held that he still had a contractual duty to pay the rent due under the lease, which was not discharged by any intervening event. The court considered that if he had wished to reduce his liability to take account of intervening events preventing his performance then he should have made express provision for that in the lease.

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  Commercial Law

  • Yvonne McLaren, Josephine Bisacre, Yvonne McLaren, Josephine Bisacre(Authors)
  • 2016(Publication Date)
  • Goodfellow Publishers

    (Publisher)

  An example of this may be seen within a general contract of employment. Here the employer will have a duty to pay his employee for performance of contractual obligations, while the employee will have a corresponding right to that payment for the duties he has performed. When these reciprocal arrangements are fulfilled, the contract is termi -nated because the obligations have been carried out, i.e. performance is complete. Generally we can say that the vast majority of contracts which take place on a day to day basis are terminated, without dramatic occur -rence, by performance. However, there are other ways by which a contract may come to an end: as discussed in Chapter 6, a void contract cannot be ended because technically it never existed. Nevertheless a court may have to declare that the contract is void and make judgement regarding the respective rights of the parties. A voidable contract continues to exist unless or until it is set aside. Please note that it is the court that sets the contract aside and not the parties them -selves. If third parties acquire rights under a voidable contract in good faith and for value, then that contract cannot be set aside. In the interests of consumer protection, there are circumstances in which the law allows for the party with the obligation to be released from that obli -gation. See for example The Consumer Contracts (Information Cancellation and Additional Charges) Regulations 2013. These regulations allow consum -ers to cancel contracts which have been made during a visit by a trader to a consumer’s home or place of work. The trader cannot enforce the contract unless the consumer was given written notice of the right to cancel within fourteen days and a statutory cancellation form. The consumer is free to cancel the contract within the time limit.

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